Is the U.S. Dollar’s Dominance Faltering?

The dollar has long been the world’s primary reserve currency, and U.S. Treasuries have been viewed as the ultimate risk-free asset.

However, in recent years, the rise of economies such as those in the BRICS bloc, the growing share of gold in central bank reserves, and the emergence of new asset classes like cryptocurrencies have gradually eroded the dollar’s unrivaled position. Meanwhile, the United States’ ballooning national debt has pushed many central banks to diversify their reserve holdings.

Could the Dollar Lose Its Global Reign?

Looking at key indicators that define the dollar’s dominance, it’s clear that while its position has weakened, it remains unparalleled.

According to Bloomberg data, the dollar’s share of global reserves has fallen from 71% at the start of the 21st century to around 56%, as currencies like the euro and the yuan gained ground. Yet, even at 56%, the dollar still commands a lead that no other currency can meaningfully challenge.

As a medium of exchange in global trade, the dollar’s role has actually grown stronger, with its share of cross-border transactions rising from 46.5% to 49.6%. This reflects the U.S. economy’s stronger performance compared to Europe, whose currency ranks second with 36.9% of international trade settlements.

Similarly, in international debt markets, the U.S. dollar remains the dominant issuance currency—accounting for 45.3% of all global debt securities, a level it has maintained for the past 25 years.

The dollar and the euro remain the benchmarks for global investors thanks to the scale and liquidity of U.S. and European financial markets. Listing on American exchanges such as NASDAQ, Dow Jones, or the S&P 500 continues to symbolize a company’s global success.

(Figure 1: Indicators of the U.S. Dollar’s Global Standing – Source: Bloomberg)

Gold Returns as a Strategic Reserve Asset

In recent years, gold has reemerged as a preferred reserve asset—partly as a hedge against political and financial risk.

(Figure 2: Share of Gold and U.S. Treasuries in Total (EPA:TTEF) National Reserves – Source: Tavi Costa)

According to data from Tavi Costa, 2025 marks the first time since 1996 that gold holdings in global central bank reserves have surpassed the value of U.S. dollar reserves. This shift has been driven both by soaring gold prices and a wave of central bank accumulation.

(Figure 3: Global Physical Gold Demand (tons) – Source: World Gold Council)

Over the past three years, central banks have been buying gold at an unprecedented pace—over 1,000 tons per year. In the first nine months of 2025 alone, they accumulated more than 730 tons.

This trend accelerated after Western sanctions froze Russia’s assets in 2022, shaking global confidence in the idea that U.S. dollar assets are politically neutral or risk-free. Gold, by contrast, is a tangible asset that cannot be sanctioned or seized, making it an attractive alternative for reserve managers.

Concerns have also grown over the Federal Reserve’s independence, particularly amid reports that former President Donald Trump sought to influence Fed appointments. Such developments raise fears that U.S. monetary policy could become more politically driven—further undermining confidence in Treasuries as a safe-haven asset.

At the same time, America’s federal debt has reached alarming levels—over $36 trillion, or roughly 119% of GDP by the end of Q2 2025, rose sharply from 106% before the COVID-19 pandemic.

Persistent budget deficits and a rising debt burden could have dire long-term consequences. As risk perceptions rise, investors will demand higher yields, pushing up domestic borrowing costs—especially for long-term loans such as 30-year fixed-rate mortgages that are tied to Treasury yields.

(Figure 4: U.S. Debt-to-GDP Ratio – Source: FRED)

The Rise of Alternative Financial Systems

Beyond gold, new forms of money are emerging that could challenge the dollar’s dominance.

Several central banks—including those of the Bahamas, Jamaica, and Nigeria—have already launched their own digital currencies (CBDCs), while China’s e-CNY has been tested in large-scale pilot programs exceeding $280 billion in transactions. These digital currencies could one day enable instant, low-cost cross-border payments while improving transparency and anti-money-laundering oversight.

One of the most serious developments is Project mBridge, an international multi-CBDC platform coordinated by the Bank for International Settlements (BIS) and several central banks. Using Distributed Ledger Technology (DLT), mBridge enables direct, peer-to-peer cross-border payments without relying on the U.S. dollar or the SWIFT network.

The project, founded by the central banks of China, Hong Kong, Thailand, and the UAE, welcomed Saudi Arabia as a full member in 2024. With the world’s largest oil importer (China) and two of its biggest exporters (Saudi Arabia and the UAE) now part of the same non-dollar payment infrastructure, the foundation is being laid for a digital petro-yuan system. This could facilitate LNG/Oil transactions settled directly in yuan—bypassing the U.S.-led financial architecture altogether.

Digital Assets: A New Arena of Influence

The U.S., however, has been quick to assert its influence over the digital asset space. The GENIUS Act requires all stablecoins to be fully backed 1:1 by cash, U.S. Treasuries, or Treasury repo agreements. This effectively anchors stablecoin demand to the dollar, reinforcing its dominance even within this emerging market.

Most cryptocurrency transactions today are conducted via stablecoins—primarily USDT (Tether) and USDC (Centre)—with a combined market capitalization of $260 billion and an annual transaction volume in 2024 reaching $28 trillion. That figure surpasses the combined processing volume of Visa and Mastercard in the same year.

Although stablecoin circulation still accounts for less than 1% of global M2 money supply, the growth trajectory suggests that the dollar’s role in digital finance will remain formidable.

While the BRICS nations work to build a state-controlled alternative system to bypass the dollar, the private sector has already developed a global, 24/7, instant settlement network powered by U.S.-backed stablecoins.

A Fragile Dominance

The dollar’s supremacy endures, but its foundations are being tested.

Externally, a coordinated geopolitical campaign led by the BRICS+ bloc—accelerated by the 2022 sanctions regime—is driving efforts to construct a parallel, de-dollarized financial system.

Internally, America faces self-inflicted vulnerabilities: unsustainable fiscal trajectories, rising political dysfunction, and waning trust in its institutions. For the first time, markets are beginning to price in risk within the United States, rather than viewing it solely as the world’s “safe haven.”

Meanwhile, alternative assets—from gold as a traditional store of value to mBridge as a technological challenger—are gaining traction. Yet, in the digital frontier, the U.S. may still hold the upper hand: stablecoins could become the next instrument through which the dollar reasserts its dominance in the evolving global financial landscape.